ABM Industries Inc Q3 2025 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Luke McFadden - William Blair Capital Partners - Analyst : This is Luke McFadden on for Tim Mulrooney. Maybe I want to start here just on the M&D business. Growth in that business was quite a bit stronger than what we were modeling. And I know you've had some headwinds in this segment over the last couple of quarters with respect to that larger customer rebalance. So is this growth acceleration primarily a function of kind of lapping some of those headwinds or really more tied to the underlying momentum you're seeing in the business at this point?

Question: Luke McFadden - William Blair Capital Partners - Analyst : Understood. Makes sense. And thinking about free cash flow here in the fourth quarter. We just wanted to make sure we're doing our math right. So inclusive of the full year elevation and integration costs, we're getting to about $170 million implied free cash flow for the fourth quarter. Is that the right ballpark or are we doing something wrong there?

Question: Jasper Bibb - Truist Securities Inc - Analyst : I wanted to follow up on the margin headwinds. I guess to clarify, would you categorize the margin pressures as incremental growth investments? Or is there anything else driving this? Because the B&I and M&D growth has actually been really good, so it doesn't seem really like an operating leverage challenge, I guess.

Question: Jasper Bibb - Truist Securities Inc - Analyst : No, that's helpful. And then you mentioned the cash flow outlook. Can you maybe give us some more detail on your progress on collections? Any concerns about delinquencies and maybe a good frame for us where you're at on billing cycles for new revenue versus what could be considered normal?

Question: Andy Wittmann - Robert W. Baird & Co Inc - Analyst : Yes. Great. I guess I just wanted to kind of dig into the guidance in the quarter and all the implications here a little bit deeper. And I guess, specifically, it's a big quarter-over-quarter EPS ramp. And there can be historically some positive seasonality that helps 4Q or 3Q, but it looks particularly acute this year to achieve the low end of the guidance. So that's really what I want to get into. When I look at it here, your implied fourth quarter to get to the low end is $1.09 to get there. Consensus is $1.07. So that actually kind of feels like no change, but it feels like there's clearly a change here in terms of the margin rate that your annuity businesses have exited the quarter with on Q3 versus Scott's comments here so far. So I guess maybe the question is, which of the segments sequentially that are going to drive such a sharp acceleration in your operating income dollars and why? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2025 / 12:30PM, ABM.N - Q3 2025 ABM Industries Inc Earnings Call

Question: Andy Wittmann - Robert W. Baird & Co Inc - Analyst : Got it. And it's just interesting if you look at the interest expense specifically, I mean, that's a pretty big change in your guidance for interest expense. Just that change in interest expense here for the half year explains really the delta between the high end of your EPS and the low end now that you're talking about it, is actually almost completely explicable by the change in your interest expense outlook. So just -- I guess that's just a comment more than a question, but still, I think, notable. Scott, I guess, maybe to you here, just the -- last quarter, it kind of felt like things were kind of firing on most, if not all, cylinders. And it just -- it feels like -- I didn't hear a lot of commentary about some pockets of weakness, tough markets in the West Coast and the Midwest. This quarter, kind of a bigger change. I guess just like -- can you just take us through the time line as to what changed through the quarter? And I would have thought that there had been some indication about kind of some of these pricing negotiations that you're going into. Maybe just take us through kind of how this all evolving came to be so that we just understand kind of what happened here.

Question: Andy Wittmann - Robert W. Baird & Co Inc - Analyst : That's really helpful perspective.

Question: Faiza Alwy - Deutsche Bank AG - Analyst : Scott, I wanted to follow up on the same topic. You talked about you don't want to test to the market. And I'm curious if you can talk more about the competitive environment. Like, are you seeing new entrants out there? Because I would have thought just given where we are in terms of the labor environment, there may be some potentially competitive advantages that you might have. So just talk a little bit more about that thought process.

Question: Faiza Alwy - Deutsche Bank AG - Analyst : Okay. Understood. Makes sense. And then just to put a finer point on what you're saying with respect to B&I versus M&D, because it sounds like those are the two segments where you're undertaking the strategic pricing. Like B&I feels a little bit more defensive versus M&D, it sounds like there's a lot of new business opportunities. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2025 / 12:30PM, ABM.N - Q3 2025 ABM Industries Inc Earnings Call So I just want to make sure that I'm thinking about it the right way. And if that's right on M&D, should we expect growth to accelerate from here as you'll get some of this new business perhaps at a slightly lower margin? I'm just trying to think through like the margin implications for next year.

Question: Josh Chan - UBS Equities - Analyst : I appreciate the color about the strategic pricing and escalation actions, I guess. But could you talk to the magnitude of the margin headwinds? Because I guess, in any given quarter, only a very small portion of your business, I would expect, to be rebid or renegotiated at any time, right? So just to see those more episodic events have that big of a margin impact, could you talk to kind of how that caused the magnitude of the margin headwind?

Question: Josh Chan - UBS Equities - Analyst : Okay. That makes a lot of sense. And then in terms of the catch-up into Q4, certainly, it does seem like Q4 is becoming a lot healthier. I realize the escalation timing could contribute to that. But I guess, what's your confidence level that that alone can drive the projected level of sequential margin improvement?

Question: Marc Riddick - Sidoti & Company LLC - Analyst : David, certainly looking forward to working with you going forward. Thank you for all the color that you guys have already provided. I guess I just sort of want to take a different tack on this. I was sort of curious, Scott, maybe you could talk a little bit, you gave some examples on sort of how these opportunities present themselves during the quarter, maybe you could talk a little bit about the visibility and maybe some of the contract length, things like that, that maybe sort of the benefits of that retention and how we should think about that vis-a-vis historical visibility levels?

Question: Marc Riddick - Sidoti & Company LLC - Analyst : Excellent. And that's kind of where I was going there. So I mean do you sense that there are other similar opportunities that you might be able to take in the near term? Or do you get the sense that that might be driven more so around the differentiation of regional performances that you're hinting at earlier?

Question: Marc Riddick - Sidoti & Company LLC - Analyst : Great. So I appreciate the explanation on going over that. The one thing I also wanted to touch on, you mentioned in your prepared remarks AI benefits and the like. Can you talk maybe about maybe the timing of when you might see that and sort of how that might take shape and how that sort of plays into the ERP?